Through Islamic finance innovation, Malaysia can signal its openness to foreign direct investment and participation in its capital markets. — AFP
LAST month, Bank Negara Malaysia (BNM) announced the adoption of Malaysian Islamic overnight rate (MYOR-i) as the mandatory reference rate for Islamic finance products starting in July 2027.
This move is a significant structural reform that will boost transparency, consistency and syariah alignment, and advance Malaysia’s Islamic finance ecosystem.
As of last year, the global Islamic finance industry was worth US$4 trillion, and projected to surpass US$9.7 trillion (RM41.0 trillion) by 2029.
This continued growth will intensify activity among key Islamic finance hubs such as Saudi Arabia and the United Arab Emirates, each advancing initiatives to attract global capital and deepen their markets.
To remain a leader and maintain the edge it enjoys today, Malaysia would benefit from further nurturing access and connectivity to the global investor community.
New technology and its strong starting point give Malaysia a unique opportunity to solidify its position in Islamic finance worldwide.
Malaysia’s finance market has steadily undergone digitisation the past few years, with the government this year pledging additional RM100mil for financial innovation and RM3.8bil on micro small and medium enterprise financing to support automation.
Investing in infrastructure to digitise workflows and operations will further help Malaysia scale, increasing the volume of transactions and activity in sukuk issuance alongside its broader financial markets.
As it stands, the Malaysian Government Investment Issues (MGII) still operate on a manual or over-the-counter model, which limits its liquidity and price discovery potential.
Transitioning to electronic trading and making MGII available within regulated marketplaces in Malaysia will help improve price transparency, accessibility and ultimately, confidence for investors here and abroad.
Together, these improvements will boost liquidity, activity and size of Malaysia’s Islamic finance sector, helping the syariah marketplace remain vibrant, active and competitive.
The government has been pivotal in the growth of Islamic finance the past 30 years.
The five identified key development areas announced by BNM in October – namely, MYOR-I adoption, improving risk-sharing structures, promoting inclusive development, deepening global connectivity and building talent – are evidence of the government’s commitment to introducing policies that promote the sector at home.
It is a positive step and presents an opportunity for the private sector to partner with Malaysia.
An example of this could be around working with the government to develop innovative syariah-compliant products in green transition or green sukuks, amongst other initiatives.
In addition to investing in digital infrastructure and a supportive policy framework, innovation also plays a critical role in remaining competitive.
The Securities Commission (SC) recently announced plans to tokenise bonds and sukuk as early as end of this year.
The SC is currently reviewing how Islamic finance can use blockchain for issuance and settlement, a move that can promote greater retail participation and make products more transparent and accessible.
Forward-thinking initiatives like these can ensure Malaysia continues to lower the barriers to entry in Islamic finance.
There’s a lot on offer for global leaders in Islamic finance. International investors are looking to participate in the sector more and more.
There are obvious synergies between sustainable finance, syariah principles and a growing community of investors looking to tap into high-growth emerging markets like Malaysia.
More awareness, exposure and transparency around syariah investing will help increase confidence for investor buy-in.
Through Islamic finance innovation, Malaysia can signal its openness to foreign direct investment and participation in its capital markets.
Malaysia is the world’s largest sukuk issuer and the economic gains for the nation are significant if it continues to build on its Islamic finance leadership.
The government has made notable strides in creating the environment and policies for the industry to flourish.
As competition heats up across the Islamic finance hubs around the world, market accessibility, connectivity and innovation will help Malaysia retain its competitive edge for the long run.
The good news is the nation is well-positioned to capture this opportunity.
Kelvin Cen is head of South-East Asia, Bloomberg. The views expressed here are the writer’s own.
